Authorized Lying

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Authorized Lying

The following is from Thomas Sowell. Compassion Versus Guilt. pp. 108 - 110

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Authorized Lying

The truth and the public are both great inconveniences to politicians in power. Treasury Secretary Donald Regan, now proposes that banks be officially authorized to lie to the public about the bad loans they made to Third World countries.

The banks are already lying unofficially. Bank reports include in their earnings interest they "expect" to receive from loans to Third World countries. Argentina hasn't made any such payments in months. Yet bank reports keep listing Argentine payments that they "expect," just as if they had actually received them.

It makes bank earnings look good on paper. Nobody is fooled but the public. Argentina hasn't even said, "The check is in the mail." Nobody in his right mind expects Argentina—or many other Third World debtors—to pay off their debts, or even to keep up the interest payments.

The only real issue is whether the bankers and the politicians can keep on fooling the public. After 90 days of not even receiving interest payments, the law requires banks to, stop listing phantom "expected" payments among their earnings reported to the public. Secretary Regan thinks these bank regulations should be "relaxed."

So what if Argentina's payments are $650 million overdue? It could happen to anyone. In fact, Mexico, Brazil, and many other Third World countries have also run up whopping debts, on which they may or may not be able to make interest payments.

All this international crisis atmosphere is over interest payments only. No one is Utopian enough to expect that the principal will be repaid—unless the American taxpayers pay it.

There are all sorts of high-sounding words to conceal these plain facts from the public. Loans are "rescheduled." That means that if they don't pay now, we will postpone their payments till later. And when later comes, we can postpone them again.

Then there are "adjustment" loans. That means you give them new loans to pay off their old loans. That means that loans are not repaid, just rolled over.

This not only makes bankers look good on paper, it does the same for government agencies that pour the tax-payers' money down a bottomless pit to subsidize shaky governments in chaotic countries. As long as loans are rolled over, the books don't show what huge losses are being suffered by the taxpayers, bank depositors and stockholders.

"A rolling loan gathers no loss," is the way one banker put it. An audience of bankers roared with laughter at hearing it phrased that way. Whether the American tax-payers would be as amused, if they understood, is another question entirely.

Treasury Secretary Regan has urged "strengthening" the "resources" of the International Monetary Fund, which deals with financial problems among nations. That sounds good. Most things politicians say sound good. That's why you have to look at the fine print.

In plain English, the "strengthening" of I.M.F. "resources" means spending more American dollars to prop up irresponsible big spenders in the Third World. We are not talking about keeping starving people alive. There are relief agencies for doing that. We are talking about picking up the tab for showy new subway systems, government buildings and whole new capital cities built in Third World countries with borrowed money.

We are talking about letting them go on doing more of the same, without paying off what they owe already. When Federal Reserve Chairman Paul Volcker talks about "continuing credit to maintain continuity of payments," that means giving them more money just so they can pay interest on what they already owe. A high official of one of the big banks being rescued by government bailout activity speaks fondly of "a remarkable degree of coordination" among government officials and commercial lenders. He says, "The process is working." It is working for him—but not for the taxpayers.

All this roundabout language fools no one but the public. If they ever catch on, the party's over.

—April 9, 1984

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29 May 2024